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How To Finance Your Next Business

How To Finance Your Next Business

How to Finance Your Business

Starting a new business is an adventure of its own. The potentials of a new product or service, taking on market competitors, and creating a lasting legacy are reasons entrepreneurs go into business. Having a perfect idea and a business plan is never enough. Many other factors determine whether a business will survive or grow, and finance is just one of many.  

The importance of getting adequate funding for your business can’t be overstated. Therefore, we have created this article to walk you through financing your business. 

two men in suits working on a business plan

Business plan

A business plan is one of the important documents that an entrepreneur must have. It basically needs to show the plans for the future of the company over the next three to five years. A business plan is made up of different parts which can be edited or updated as the company grows. Changes come with growth, so as a company gets bigger the resources needed to sustain it increases.

When designing a business plan; one of the first steps is to have a clear and defined summary of the business goals. Your overall objectives and profile of the new company should be clear. It must point out the details and process from the input stage to the output stage for the products or services.

The company must show why they are better than competitors in the same industry. Also, they’ll need to address who the primary market target is to underline the end goal. 

The initial agenda

Before you start a new business, a market survey and analysis must be conducted. A market analysis will provide detailed information of the industry. Such as, characteristics of the industry, prospects of market share and a clear picture of the target market. 

The organisational structure of the company needs to be clear from the outset. This includes the patterns of division for labour among staff, qualification and functions of the board of directors. Furthermore, information about the ownership needs to be found in the organisation and management segments of the plan.

You’ll also need a full breakdown of the business covering areas like:

  • The products or services it will offer to the public 
  • How to market the products or services 
  • How to strategise and implement sales and customer services policy to achieve the company’s goal 

Funding request

If an entrepreneur plans to source for the funds to start a business from potential shareholders, then this segment must be included in the business plan. The segment should show the capital that the business needs presently and a five years projection. There must be explicit details of how the funds will be used. Also, the associated terms and type of funding that the business owner would prefer.

Lastly, all the future financial plans that are important to the company must be in the business plan. For instance:

  • Debt repayment 
  • Merger or acquisition plans 
  • Buyout plans, and selling the company

All this information will be useful for potential investors or an individual who is planning on funding the company. 

Financial projections

A financial projections segment detailing a clear picture of the company’s growth and development in the coming years should be in the business plan. It will make it easier for potential investors to decide on funding the business. This segment requires a lot of data. You can collect this data from a market survey, without which it cannot be completed. This will enable the company to be efficient and effective in allocating resources. 

When establishing solid financial projections, one of the important parts is past historical financial data. Creditors usually lookout for information of the past three to five years of a growing business. But a new business will have none of the information required. A statement like balance sheets, income statement, cash flow statement or any financial history document will do. All non- current assets owned by the business should be added, like:

  • Machinery 
  • Vehicles 
  • Buildings  
  • Or any assets that could be used as collateral 

Getting it right for the lender

Creditors need to know and understand how a business will plan, strategise and achieve its goals and objectives. They will expect the entrepreneur to provide the right prospective financial information to explain this. The financial data information of the first year can be viewed monthly or quarterly, the other four years can be yearly. Documents like capital budgets, income statements and cash flow statements, forecasted balance sheets should be added.  

Financial information should be provided at the end of this segment. Basically, it should entail short analysed financial information, with expected trend analysis for prospective and historical financial sheets. Images such as charts and graph are helpful and add more clarity than long pages of data. 

a business loan application form with a pen on top

Your business loan

The issues of raising funds for a new business can be approached by asking for loans from banks or individuals, family and friends. The Small Business Administration (SBA) provides diverse loans, plans that cater for various financial needs. An entrepreneur must take his time in deciding which option to choose. 

One of the important steps when setting up a business or establishing a viable plan for a company is the right business plan. If you want to create a new business plan and your business has existed for a while, the business plan must indicate growth and development. These plans must be made clear from the outset to the potential investors.

The information requested by the lenders should be selected and compiled early. This is so that any issues can be identified and addressed to speed up the procedure of sourcing funds for the business. The survival of a business can be affected by the type of business loan program. Before deciding on the loan plan, the plan must be properly researched and carefully chosen like any other business decision. 

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